Which accounting method is primarily used by most businesses?

The accrual basis of accounting is the method primarily used by most businesses because it provides a more accurate reflection of financial performance and position over time. Under this method, revenues are recognized when they are earned, regardless of when the cash is actually received, and expenses are recognized when they are incurred, not necessarily when they are paid. This allows businesses to record transactions in the period they occur, leading to better matching of revenues and expenses, which is crucial for understanding profitability and financial health.

The accrual basis aligns with Generally Accepted Accounting Principles (GAAP), making it the standard for external reporting, especially for publicly held companies. This method facilitates the tracking of all financial activities and provides stakeholders with a clearer picture of the company's actual financial status, helping in making informed decisions.

In contrast, other methods like the cash basis of accounting only recognize income and expenses when cash is exchanged, which can distort a company's financial reality, particularly for businesses with significant credit transactions. The tax basis is primarily focused on tax reporting, while the modified cash basis is a hybrid and not as widely accepted or utilized as the accrual method. Thus, the accrual basis is favored for its completeness and consistency in financial reporting.